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LANSING — Michigan residents will lose $53 million in potential health insurance rebates that instead will go to insurance companies, if the state gains permission to let them do so.

It could also mean higher premiums for individuals, said advocates with the Michigan Consumers for Health Care. But state regulators say the move is necessary to protect the health insurance market and to keep insurers from leaving Michigan.

Starting this year, insurers must devote 80 percent of premiums directly to a customer’s health care under the health care reform passed by Congress in 2009. The other 20 percent is kept by the company. If part of that 80 percent isn’t used for health care, it must be returned to the customer as a rebate.

However, 14 health insurance companies in Michigan kept more than 20 percent of premiums before the law was passed. Michigan applied to the U.S. Department of Health and Human Services to allow them to continue that practice for three more years.

If the waiver is granted, the companies would be able to divert just 65 percent of premiums toward customer health care in 2011, 70 percent in 2012 and 75 percent in 2013, according to the Michigan Office of Financial and Insurance Regulation.

The waiver allows companies time to adjust to the 80 percent standard, said Jason Moon, the public information officer for the agency. If the state didn’t apply for the waiver and the insurance companies don’t change their business model immediately, at least 14 would be issuing rebates to customers this year, Moon said. But the rebates would wipe out the profits of at least eight of those 14.

“In that sense, they would be operating at a loss,” he said.

The largest companies in Michigan that would benefit from the waiver are Golden Rule Insurance Co., Time Insurance Co., Aetna Life Insurance Co., Humana Insurance Co. and World Insurance Co.

Of these companies, Aetna and Humana contribute the most directly toward health care, at 70 percent. World Insurance contributes the least to health care, at 52 percent, according to the Office of Financial and Insurance Regulation.

The waiver request was submitted in July. Moon said the federal government has not indicated when a decision will come. Seventeen other states have applied for similar waivers.

While the state fears disrupting the insurance market, health care advocates are more concerned with the effects on health insurance customers.

They are set to lose $53 million in rebates and possibly see their premiums go up, said Don Hazaert, the director of Michigan Consumers for Health Care.

“Either way you want to look at it, it’s going to lead to higher premiums for the consumer, whether it’s higher rates or the fact that the consumer will be denied a rebate at the end of the year,” he said. “If the state is saying it’s OK for a carrier to keep 35 percent rather than 20 percent, they’re obviously going to do that.”

Hazaert said the law was supposed to make companies more efficient by devoting more money to the customer. Allowing companies to retain an extra 15 percent of the premium doesn’t encourage that, he said.

“You take that 15 percent out of the equation, premiums have to come down, or that money has to be put into the care of the consumer,” he said.

But if the businesses aren’t given time to adjust, they might leave the state altogether, Moon said. The waiver request is an attempt to prevent disruption in the market. If it isn’t granted, companies losing money could leave the state, decreasing competition and limiting choices for insurance. Moon said the state isn’t sure if those companies would actually leave.

“No one has expressed the intent to leave,” he said. “It’s hard to gauge, but we wanted to lessen the impact to this market so we can keep as many insurers and give consumers as many choices as possible.”

Even though the waiver is for three years, Hazaert said that’s too long to keep costs high, which affects access to health care. Because the state didn’t account for that in the waiver application, Hazaert said the state’s case isn’t strong.

“Protecting the profitability of the commercial carriers for the sake of protecting the profitability is not a strong argument to make,” he said.

Aetna Life Insurance released a statement supporting Michigan’s waiver application.

“We are supportive of the commissioner’s (R. Kevin Clinton of the Office of Financial and Insurance Regulation) efforts to ensure Michigan remains a competitive marketplace and products are available to everyone in the state, as we transition through health care reform,” said Anjie Coplin, the regional director of communications for Aetna.

Time Insurance Co. released a similar statement, adding that it will adjust in the best interests of its customers, whether or not a waiver is granted.

When asked what effect not approving the waiver would have on Golden Rule Insurance Co., Ellen Laden, its director of public relations, said the company wasn’t going to make predictions and that Golden Rule will pay out rebates if it doesn’t meet the 80 percent standard.

The other insurance companies affected by the waiver did not respond to requests for comment. Rep. Pete Lund, R-Shelby Township, chair of the House Insurance Committee, did not have a comment on the matter.

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